Yields edge higher as confidence in banks improves
By Karen Brettell
NEW YORK, March 28 (Reuters) -Benchmark 10-year U.S. Treasury yields edged higher on Tuesday as investors were cautiously optimistic that recent stress in the banking system will be contained, and before a sale of five-year notes.
Yields have risen from six-month lows reached on Friday as stress in the banking sector appears to subside, following the collapse of Silicon Valley Bank and Signature Bank earlier this month.
Greater confidence in the banking system has also increased the likelihood that the Federal Reserve will be able to complete another rate increase as it focuses on bringing down inflation.
“The bigger picture story will be towards downward pressure on rates as we progress through 2023 because we will in all probability get closer to rate cuts,” said Padhraic Garvey, regional head of research, Americas at ING.
“But in the very short term it wouldn’t surprise me if this marketplace began to focus a little bit away from the banking story and more on the fundamentals, which are still reasonably strong. They will weaken, but they’re reasonably strong and we still have an inflation battle to fight and technically we’re still in a rate hiking environment,” Garvey said.
Fed funds futures traders are now pricing in a roughly equal chance that the Fed will hike rates by 25 basis points in May, or leave them unchanged at 4.75-5.00%. They are also pricing for the rate to fall to 4.24% by December. FEDWATCH
Benchmark 10-year yields US10YT=RR rose two basis points to 3.553% on Tuesday. They are up from a six-month low of 3.285% on Friday, but remain below a 15-year high of 4.338% on Oct. 21. Two-year yields US2YT=RR rose five basis points to 4.010%, up from a six-month low of 3.555% on Friday but below the almost 16-year high of 5.084% hit on March 8.
The closely watched yield curve between two-year and 10-year notes was last at minus 47 basis points.
The Treasury Department will sell $43 billion in five-year notes on Tuesday, the second sale of $120 billion in short- and intermediate-dated supply this week.
Demand for a $42 billion auction of two-year notes on Monday was weak. The Treasury will also sell $35 billion in seven-year notes on Wednesday.
March 28 Tuesday 9:16AM New York / 1316 GMT
Price | Current Yield % | Net Change (bps) | |
Three-month bills US3MT=RR | 4.65 | 4.7713 | 0.019 |
Six-month bills US6MT=RR | 4.655 | 4.8466 | -0.032 |
Two-year note US2YT=RR | 99-190/256 | 4.0104 | 0.045 |
Three-year note US3YT=RR | 102-56/256 | 3.825 | 0.033 |
Five-year note US5YT=RR | 101-160/256 | 3.6359 | 0.041 |
Seven-year note US7YT=RR | 102-104/256 | 3.6037 | 0.032 |
10-year note US10YT=RR | 99-144/256 | 3.5525 | 0.024 |
20-year bond US20YT=RR | 99-160/256 | 3.902 | 0.005 |
30-year bond US30YT=RR | 97-112/256 | 3.7685 | 0.009 |
DOLLAR SWAP SPREADS | |||
Last (bps) | Net Change (bps) | ||
U.S. 2-year dollar swap spread | 33.25 | 4.25 | |
U.S. 3-year dollar swap spread | 16.75 | 0.50 | |
U.S. 5-year dollar swap spread | 6.50 | 0.00 | |
U.S. 10-year dollar swap spread | -1.00 | 0.00 | |
U.S. 30-year dollar swap spread | -47.25 | 0.00 | |
Reporting by Karen Brettell; Editing by Andrea Ricci
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